JELD-WEN A Buy But Analysts Sentiment Is Slipping

JELD-WEN Cut To Underweight By JPMorgan Chase 

Shares of JELD-WEN (NYSE: JELD) have been trending lower for the last few months and they move even lower before they start moving higher again. Although the analysts still rate the stock a firm Hold verging on Buy the trend in the Insidertrades.com consensus sentiment is decidedly bearish. JPMorgan analyst Michael Rehaut summed the situation up nicely when he said this in his letter to shareholders … “Investor concerns regarding a pull-forward of demand are not likely to abate any time soon, as housing industry data points have begun to soften, which is likely to continue given interest rates’ persistent and significant YTD climb,"

In his view, the company has additional headwinds in the form of European exposure. The company’s exposure to Europe is running at nearly 30% of sales so with the war in Ukraine and other geopolitical events in play there is a significant risk to both the top and bottom lines. Rehaut lowered his price target to $23 when he cut the stock to Underweight, that target represents about 15% of upside for the stock compared to the broad consensus of $28.50 which is 40% above the recent price action. Both the consensus sentiment and consensus price target are down in the 90 and 30-day comparisons. 

Institutions Are Buying JELD-WEN If The Analysts Aren’t 

Institutional activity in JELD-WEN has been robust over the past few quarters even as the analyst's sentiment softens. The institutions have been net buyers for the last 5 quarters and the last 3 quarters have seen a noticeable uptick in both total activity and net purchases. The net purchases for the last 5 quarters are worth almost 30% of the market cap with shares trading at their new lows, an amount that brings total institutional holdings up to over 95% and growing. What this means to us is the analysts have fears the near-term results won’t live up to the expectations and the institutions are using the dip to add to their positions. They’d only do that if they thought the stock was undervalued trading at only 8.5X its earnings outlook and that maybe its business is sound, as is the long-term outlook. 

The analysts have been pulling their estimates for earnings back too. The consensus at the beginning of April is for a sequential decline and YOY growth in the range of 10%. In our view, there is a chance this figure is overly optimistic given the situation in Europe but that is offset by an expectation for strength in the U.S. The housing data may be soft in terms of growth but the industry is still booming and houses are being built and remodeled virtually everywhere we look. The real question that needs to be answered is how are margins holding up? Margins came under pressure earlier in the fiscal year and resulted in a large downward revision to the consensus a very low bar for the company to beat. 

Turning to the company’s guidance, the execs are optimistic about this year even if the analysts aren’t. The company issued favorable guidance for the year including margin expansion that is in stark contrast to the consensus figures. The bottom line, JELD-WEN is a high probability candidate for volatility when it reports earnings. 

The Technical Outlook: JELD-WEN Falls To 18-Month Low 

Shares of JELD-WEN fell to an 18-month low after JPMorgan Chase downgraded the stock and it may fall lower. The caveats are that 1) a weak report is already being priced into the stock so a bad quarter may not matter and 2) there is substantial upside risk in the outlook now that it has deteriorated to the point it has. In either case, we are expecting to see JELD-WEN put in a bottom and possibly begin reversing in tandem with the Q1 earnings release unless, of course, the institutions start shedding their holdings. 

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About Thomas Hughes

[email protected]

Experience

Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 

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